Today my Nexus 5 starts to do the same, default Ringtone and "Wrong file type, please select again". After several hours trying different solutions I came to the conclusion that the problem is in -or related to- the "Google Play Music" which do not work for local files anymore. I was able to finally get my custom ring tones again to life performing two tasks, but I do not known which one solves the problem because a reboot is needed and I perform both before reboot.
1) In my case in the root of the SD card there was a ".nomedia" file which could prevent multimedia use in this folder and below. So try to delete this file and reboot terminal, then try to set a custom ring tone.
Note: My Nexus is in spanish, and options could have a different name.
2) I suspect that multimedia SQLite database was corrupted in some way, so I went to Settings -> Applications -> "Almacenamiento de medios" (Maybe Media storage? com.android.providers.media) and deleted data, then reboot.
After the reboot all multimedia data was rescanned and I was able to change the ring tone again.
Note: I had detected that my old custom tone for notifications was gone, the file was gone and I was unable to find it in my storage media.